ITO 25(3)(1), MUMBAI V. MEENA VINOD SHAH, MUMBAI

ITA 2862/MUM/2011

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 84066 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 6 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-11-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 05-11-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 11-04-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RUDOLPH N DSOUZA
• Assessee Lawyers: MAYUR A SHAH
• Keywords: Business income; Notional interest

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL B BE NCH, MUMBAI . . , !' , # $ BEFORE SHRI I.P. BANSAL, JUDICIAL MEMBER AND SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER ./I .T.A. NO. 2862/MUM/2011 ( % % % % / ASSESSMENT YEAR : 2008-09 THE ITO 25(3)(1), BLDG. C-11, PRATYAKSHAKAR BHAVAN, BANDRA KURLA COMPLEX, BANDRA (E), MUMBAI-400 051 / VS. SMT. MEENA VINOD SHAH, GEETA NIVAS, MATHURADAS ROAD, OPP. LAXMINARAYAN TEMPLE, KANDIVALI (W), MUMBAI-400 067 & # ./ '( ./ PAN/GIR NO. :ABIPS 9160L ( &) / APPELLANT ) .. ( *+&) / RESPONDENT ) &) , / APPELLANT BY: SHRI RUDOLPH N DSOUZA *+&) - , / RESPONDENT BY: SHRI MAYUR A SHAH - ./# / DATE OF HEARING :05.11.2014 01% - ./# / DATE OF PRONOUNCEMENT :05.11.2014 2 / O R D E R PER N.K. BILLAIYA, AM: THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE LD. CIT(A)-35, MUMBAI DT.31.1.2011 PERTAINING TO A.Y.20 08-09. 2. THE FIRST GRIEVANCE OF THE REVENUE IS THAT THE L D. CIT(A) ERRED IN DIRECTING THE AO TO TREAT LONG TERM CAPITAL GAIN AS CAPITAL GAINS INSTEAD OF ITA NO. 2862/M/2011 2 BUSINESS INCOME. THE SECOND GRIEVANCE IS THAT THE LD. CIT(A) ERRED IN DELETING THE ESTIMATION OF INCOME. 3. WHILE SCRUTINIZING THE RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION, THE ASSESSING OFFICER NOTICED THAT T HE ASSESSEE HAS SHOWN LOSS OF RS. 26,766/- FROM FUTURES AND OPTIONS TRADI NG, SHORT TERM CAPITAL GAIN ON SALE OF SHARES AT RS. 2,57,570/-. THE ASSE SSING OFFICER NOTICED THAT THE ASSESSEE HAS ALSO SHOWN BANK INTEREST OF RS. 666/-. THE AO FURTHER OBSERVED THAT LONG TERM CAPITAL GAIN OF RS. 43,74,554/- ON SALE OF SHARES WAS CLAIMED TO BE EXEMPT. THE AO WAS OF THE FIRM BELIEF THAT THE ASSESSEE HAS UTILIZED OVERDRAFT ACCOUNT FOR MAKING TRANSACTIONS IN SHARES WHICH MEANS THAT INTEREST BEARING OVERDRAFT ACCOUNT S HAVE BEEN UTILIZED FOR SHARE TRANSACTION. THE AO PROCEEDED BY TREATIN G THE LONG TERM CAPITAL GAIN AS BUSINESS INCOME OF THE ASSESSEE. THE AO FU RTHER NOTICED THAT THE ASSESSEE HAS FORWARDED LOANS TO SOME PARTIES AMOUNT ING TO RS. 1.18 CRORES, NO INTEREST HAS BEEN SHOWN AS RECEIVED BY T HE ASSESSEE ON THESE LOANS. THE AO COMPUTED THE ESTIMATED INTEREST @ 1 8% AND ADDED RS. 21,26,773/- TO THE INCOME OF THE ASSESSEE. 4. AGGRIEVED BY THESE TWO FINDINGS OF THE AO, THE A SSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A). BEFORE THE LD. C IT(A), IT WAS STRONGLY CONTENDED THAT THE ASSESSEE WAS HAVING SUFFICIENT O WN FUNDS FOR MAKING INVESTMENT IN SHARES. IT WAS FURTHER POINTED OUT T HAT THE AO HIMSELF HAS ACCEPTED THE CLAIM OF SHORT TERM CAPITAL GAIN THERE FORE THERE WAS NO REASON TO ASSESS THE LONG TERM CAPITAL GAIN UNDER THE HEAD BUSINESS INCOME. AFTER CONSIDERING THE FACTS AND THE SUBMIS SIONS, THE LD. CIT(A) WAS CONVINCED THAT THE ORDER OF THE AO IS ERRONEOUS AND DIRECTED THE AO TO ACCEPT THE CLAIM OF THE ASSESSEE BY ACCEPTING TH E LONG TERM CAPITAL GAIN. ITA NO. 2862/M/2011 3 5. IN SO FAR AS THE ADDITION OF ESTIMATED INTEREST, IT WAS CONTENDED THAT THE INTEREST PAID BY THE ASSESSEE ON THE OVERDRAFT ACCOUNT WAS NOT CLAIMED AS DEDUCTION BUT DEBITED TO CAPITAL ACCOUNT. SINCE THE ASSESSEE HAS NOT CLAIMED ANY INTEREST, THE AO CANNOT ASSESS NOTIONAL INTEREST ON ESTIMATE BASIS. THE LD. CIT(A) WAS CONVINCED THAT THE AO CA NNOT TAX NOTIONAL INTEREST ON LOANS AND ADVANCES AND HE CAN ONLY DISA LLOW INTEREST ON BORROWED FUNDS WHICH ARE UTILIZED FOR NON BUSINESS PURPOSES. SINCE THE ASSESSEE HAS NOT CLAIMED ANY INTEREST, THE ESTIMATI ON MADE BY THE AO IS UNCALLED FOR AND THE LD. CIT(A) DELETED THE ESTIMAT ED INTEREST. 6. AGGRIEVED BY THIS, THE REVENUE IS BEFORE US. 7. THE LD. DEPARTMENTAL REPRESENTATIVE STRONGLY SUP PORTED THE FINDINGS OF THE AO. 8. THE LD. COUNSEL FOR THE ASSESSEE REITERATED WHAT HAS BEEN SUBMITTED BEFORE THE LOWER AUTHORITIES. IN SO FAR AS TREATMENT OF LONG TERM CAPITAL GAIN AS BUSINESS INCOME IS CONCERNED, WE FI ND THAT THE SHARES HELD FOR LESS THAN 12 MONTHS, THE ASSESSEE HAS SHOWN SHO RT TERM CAPITAL GAIN. THE AO HAS ACCEPTED THE SHORT TERM CAPITAL GAIN, TH EREFORE, WE DO NOT FIND ANY REASON/LOGIC FOR TREATING GAINS FROM SHARE S HELD FOR MORE THAN 12 MONTHS AS BUSINESS INCOME OF THE ASSESSEE. WE, THE REFORE DECLINE TO INTERFERE WITH THE FINDINGS OF THE LD. CIT(A). GRO UND NO. 1 IS DISMISSED. 9. IN SO FAR AS ADDITION OF ESTIMATED INTEREST IS C ONCERNED, IT IS AN UNDISPUTED FACT THAT THE ASSESSEE HAS NOT CLAIMED A NY EXPENDITURE IN RESPECT OF INTEREST PAID BY IT ON THE OVERDRAFT ACC OUNT. THE ONLY PROPER COURSE AVAILABLE TO THE REVENUE AUTHORITIES WHERE T HEY FIND THAT BORROWED CAPITAL HAS BEEN UTILIZED FOR FUNDING INTEREST FREE LOANS, THE INTEREST ITA NO. 2862/M/2011 4 CLAIMED BY THE ASSESSEE IS DISALLOWED FOR BEING INC URRED FOR NON BUSINESS PURPOSES. IN THE CASE IN HAND, WE DO NOT FIND ANY SUCH SITUATION, ADDING A NOTIONAL INTEREST IS AGAINST THE CONCEPT OF REAL IN COME. FINDINGS OF THE LD. CIT(A) ARE THEREFORE CONFIRMED. GROUND NO. 2 I S DISMISSED. 10. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 5 TH NOVEMBER, 2014 SD/- SD/- (I.P. BANSAL ) (N.K. BILLAIYA) / JUDICIAL MEMBER # / ACCOUNTANT MEMBER MUMBAI; 3 DATED : 05.11.2014 . . ./ RJ , SR. PS 2 2 2 2 - -- - *. *. *. *. 4%. 4%. 4%. 4%. / COPY OF THE ORDER FORWARDED TO : 1. &) / THE APPELLANT 2. *+&) / THE RESPONDENT. 3. 5 ( ) / THE CIT(A)- 4. 5 / CIT 5. 67 *. , , / DR, ITAT, MUMBAI 6. 78 9 / GUARD FILE. 2 2 2 2 / BY ORDER, +. *. //TRUE COPY// : :: : / ; ; ; ; ' ' ' ' (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI